Explaining the High Cost of US Health Care: No Skin in the Game

Costs are expensive because there is almost no skin in the game. Graft has taken over.

The Wall Street Journal has an interesting article on healthcare: Why Americans Spend So Much on Health Care—In 12 Charts.

The U.S. spends more per capita on health care than any other developed nation. It will soon spend close to 20% of its GDP on health—significantly more than the percentage spent by major Organization for Economic Cooperation and Development nations.

What is driving costs so high? As this series of charts shows, Americans aren’t buying more health care overall than other countries. But what they are buying is increasingly expensive. Among the reasons is the troubling fact that few people in health care, from consumers to doctors to hospitals to insurers, know the true cost of what they are buying and selling.

Contributions to employer-sponsored health coverage aren’t taxed, which makes it less expensive for companies to pay workers with health benefits than wages. Generous benefits lead to higher spending, according to many economists, because employees can consume as much health care as they want without having to pay significantly more out of their own pockets.

The prices of many medicines are hidden because pharmacy-benefit managers—the companies that administer drug benefits for employers and health insurers—negotiate confidential discounts and rebates with drugmakers.

Price Growth Since 2000

Hospitals are becoming more consolidated and are using their market clout to negotiate higher prices from insurers.

Tax Benefits

Contributions to employer-sponsored health coverage aren’t taxed, which makes it less expensive for companies to pay workers with health benefits than wages. Generous benefits lead to higher spending, according to many economists, because employees can consume as much health care as they want without having to pay significantly more out of their own pockets.

The tax benefit is the country’s biggest single income-tax break, costing billions to government revenue.

WSJ Misses the Big Picture

The charts are interesting but the WSJ misses the big picture: There is no incentive anywhere to reduce costs.

No Skin in the Game

Where the hell is "skin in the game"?

  • Those covered by Medicare have no skin in the game. And that is precisely why Medicare for All would be an abomination.
  • Those covered under company plans have little incentive to reduce costs. Once deductibles are met, there is "no skin in the game".
  • Lobbyists wrote Obamacare. The results speak for themselves.
  • Congress had a golden opportunity to allow drug imports but failed to act. Drug companies can charge what they want and insurers will pony up.
  • There is no right to refuse service. Hospitals take anyone and everyone whether or not they have insurance. As such, many don't have insurance. They have no skin in they game. Bankruptcy is a way out.
  • Massive amounts of money are wasted to keep terminal patients alive. Why? Because hospitals get paid by insurers. If hospitals didn't get paid, and had they had right of refusal, such nonsense would stop.
  • Obama himself: Obama dictated what had to be be in healthcare plans. They labeled them Gold, Silver, and Bronze. Lovely. Arguably they should have been called dumb, dumber, and dumbest. Why? Millennials and healthy people had to overpay to support everyone else. The millennials dropped out, just as free market principles would have dictated.

Let the Free Market Work

Please, let the free market work. Let insurers offer whatever plans they want. Let people buy whatever they want. And let those without insurance pay the price. I assure you, prices will plummet.

If you need a liver transplant and your insurance doesn't cover it. Sorry, you lose.

Costs for routine services will plunge because hospitals will not have to pay $200 for one aspirin to make up for the cost of an unpaid liver transplant.

Insurance plans ought to be able to force treatment overseas if someone is healthy enough to travel. A heart bypass operation in India is 10% of the cost here.

At a bare minimum, insurance companies ought to be able to offer such plans.

Personal Experiences - Stop and Smell the Lilacs

I seriously wonder if chemotherapy is more of a torture than a blessing. I watched my mom die in misery. The cost today is surely thousands of times higher. For what? To prolong someone's life for six months? At what cost? And who should pay?

When my mom stopped breathing, they asked my dad if he wanted them to try and revive her. He said no. Had he not been there, what would they have done? Why?

My wife, Joanne, died from ALS (Lou Gerhig's Disease). She was on extremely expensive drugs paid for under Medicare. Note that one does not have to be 65 to be under Medicare. Rather, Medicare picks up all costs on some terminal diseases.

Did those drugs do her any good? I doubt it. We also need to define "good". If they kept her alive for another three months (which I highly doubt), it was another three months of pain and suffering.

I sponsored a raffle for the benefit of the Les Turner ALS Foundation. And we put on a economic conference. John Hussman did a generous match of non-raffle proceeds. All told, we raised $500,000 for the Les Turner foundation.

This was an early post promoting the fund raiser: My Wife Joanne Has Passed Away; Stop and Smell the Lilacs

I am very proud of that, and also the amazing support from the Hussman Foundation.

That's skin in the game. Thanks again John!

Brass Tacks

We really need to get down to brass tacks.

Other countries seemingly have better healthcare because they control the cost of education, doctors fees, etc. They get cheaper drugs from the US than we have here.

Unless the US wants to control the cost of education, the cost of drugs, the cost of hospital care, and literally the cost of everything related, the US will not compare favorably to other countries.

In case you missed it, please consider "Free Stuff": Medicare for All Cost Pegged at $32.6 Trillion for 10 Years.

Medicare for All cannot possibly work here, even if it "seems" to work elsewhere. I suggest we try the free market, not more Obamaism.

Mike "Mish" Shedlock

Comments (103)
No. 1-25

I’ve been reading your blog daily since 2008. Never posted. Your economic analysis is generally spot on, in my judgment. I think it’s, perhaps, because you’ve made some money and appreciate the science of how the common person can make money. However, every time you venture outside of economics I tend to disagree with your posts vehemently. I think it’s because you lack the moral compass you have for economics. If I remember correctly, you married your new wife not long after your last wife passed. And that, sir, tells me everything I need to know about your social compass. Keep up the good work on economics. Do yourself and your readers a favor and skip your comments on social issues.


It is insulting for you to say people have no skin in the game. Can I ask that you send me a check each month to forward to my insurance company? How about all the seniors who pay hundreds of dollars each month for supplemental medicare coverage because, shock, medicare doesn't cover everything? And those 'employer sponsored health plans' - employees are paying for those via reduced income.

I suppose you say the same thing about those who have 'maxed out' their deductible on their auto policy after totaling their car. Just getting as much car care as they possibly can! Never mind the years of paying into the system.

Further - it is ghoulish that you suggest that an insurer should be able to ship any one off to a hospital in some distant country for surgery. Please, next time you require hospitalization (and we all do at some point), let us know which facility in India you have selected.


Another data point. Medical procedures NOT covered by the government or healthcare (cosmetic surgery, lazik, boob jobs, liposuction, etc.) have actually gone DOWN in price and with better quality. Why? The Free Market.

But hard to buy votes that way...


Great article Mish. Some other points. First of all, the lack of price transparency in health care is ridiculous. Try to call a few hospitals and clinics to get an estimate on a procedure before you go, and you will seriously get a run around and diversion tactics. There should be a published price list of procedures and you should be able to shop around for the best clinic and hospital.

I am self-employed, way under 65, and make above the poverty line. So I am one of the few people I know that has to take the full hit of the massive Obama Care premiums and giant deductibles. And very restrictive options available. So since I have a $8.5k deductible (after paying a huge premium!), I hustle and shop around and find out what things will cost before I get stuff done. Because I have to pay or it out of my pocket! People who get subsidies and/or have low or zero deductible plans could care less what something costs because they don't pay it!

The only people I have ever met that like Obama Care are either people who are below the poverty line that get it for free, work for the gov't, or liberals who work at company's that cover their insurance. So those people never see the real costs. I have not met one person to date who actually has to PAY for Obama Care who likes it.

Before Obama Care I had a high deductible catastrophic Blue Cross plan that was really cheap. In 13 years of having that plan, the premium barely rose over all those years. As soon as Obama Care kicked in, my premium doubled the very next day. And now has more then tripled. Because now I am thrown in the pool with the broke and sick people, and it falls on my shoulders to pay their health care costs.

There is no incentive to have a job and stay healthy with Obama Care. I exercise and eat healthy, but my reward is now massive premiums to pay for sick broke people who don't take care of their health. Why shouldn't a broke fat unemplopyed person not smoke 2 packs a day, drink like a fish and never exercise if healthy working people pick up all their medical costs??


Somehow everybody thinks medicine functions outside of economics and that "the system" is duty-bound to do everything medically possible for every patient, no matter how old and how close to death they are. In reality, a lot of what we do under the umbrella of "treatment" simply prolongs dying and misery. Great column!